Key Market – Philippines

With limited natural gas infrastructure in most areas of the country, the use of LPG as a ‘bridging’ fuel presents a strong opportunity in the next 10 to 20 years.

Headlines on the outlook for LPG Power Generation in the Philippines:

Strong economic growth, limited natural gas infrastructure in most areas, high energy prices and issues with energy security present a strong opportunity for LPG Power Generation.

Growing electricity demand will likely result in LPG Power Generation deployment in the short and medium terms.

Availability of oil and gas reserves and development of natural gas infrastructure in the longer term could displace some LPG Power Generation, but the case for using LPG in the preceding years as a ‘bridging’ solution is strong.

Below, we discuss the key factors that influence the outlook for LPG Power Generation in the Philippines in more detail.

Energy prices – High electricity prices and issues with energy security present a good opportunity for LPG

Owing to its geography and 7,100 islands, the Philippines has strong issues in keeping its energy prices low. These have been increasing at a near constant rate for more than ten years after the removal of the Oil Price Stabilisation Fund and privatisation of the electricity sector in 2001, with the consequent reduction of subsidies. Electricity in off-grid areas is even more expensive. Furthermore, energy security has been a major issue recently with several blackouts throughout 2015 and 2016 caused by technical difficulties and natural disasters.

Please note: It has not been possible to collect reliable historic and current retail energy price data for natural gas and diesel in the Philippines. It should also be noted that there are large differences in energy prices across different regions of the country.

The Government committed to achieve a 90% household electrification rate by 2017, by expanding and improving the transmission and distribution network, interconnecting Visayas and Mindanao grids, increasing installed capacity and expanding the energy market from Luzon-Visayas to Mindanao.

Today, almost half of electricity generation is from coal today, which will be gradually displaced by a mixture of natural gas and renewables. Geothermal and hydro are responsible for over 20% of electricity generation. Diesel and oil currently account for 6% of power generation serving the most remote locations of the country.

Existing natural gas infrastructure is largely limited to the North-west regions of the country, including the two most populous cities of Quezon and Manila.

Policy & regulatory framework– LPG could solve the energy security issues in the short term before the ambitious infrastructural development program supporting natural gas and renewables is fully deployed.

The Government has been actively encouraging private investments in the energy sector in the Philippines to help meet their ambitious infrastructure programme. From 2016 to 2030, 17,300 megawatts is needed to support the development plan of the Government, with additional power of 26,000 MW from 2030 to 2040 required. This totals 43,000 MW of new power generation capacity in the period 2016 to 2040.

In 2012, it was estimated that the country’s required capacity to 2030 would be 13,166 MW of new capacities to meet domestic power requirement – energy demand and reserve margin. 1,766 MW will be provided by committed power projects, while the remaining 11,400 MW will be available for private sector investment. Of the 11,400 MW, 8,400 MW will be baseload plants, 2,100 MW mid-range plants, and 900 MW peaking plants.

Philippines’ LPG yearly demand in 2016 was of 1.43 million metric tons, with the majority (~68%) imported. Annual LPG demand has increased at over 10% per year since 2014. This trend is expected to carry on at a lower rate (between 4 and 12%) due to the growing economy (especially manufacturing and construction sectors) and issues with energy security despite the cost and transportation challenges of LPG.

There are two LPG refineries and 28 import facilities in the Philippines with a total capacity of respectively 400 kT/year and 73 kT. Plans are being made to improve the efficiency and safety of the refineries as well as expanding their output. More than 75% of the LPG is consumed on the island of Luzon followed by Visayas (13%) and Mindanao (9%). Domestic use of LPG is the most common in the Philippines with the industrial and commercial sectors respectively consuming 26% and 14% of the total LPG demand. LPG’s demand is currently being met mixture of oil refineries and other LPG players. The largest players are Petron (36.3%), Liquigaz (23.3%), Prycegaz (12.7%), Isla Gas (12.7%), South Pacific (6.6%), Petronas (4.8%) and JG Summit (3.1%).

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